Real estate is one of the most popular and reliable asset classes due to the consistent income it produces. But while most new investors in real estate are aware of this, what they don’t know is there are several types of real estate investments they could choose from.
Real estate is generally seen as a solid long-term investment because, despite fluctuations in the short term, it’s historically less volatile than other options like stocks over time. However, real estate is also less liquid and costs more money upfront.
If you’ve thought that terms like fix and flips and owner-occupied rentals sound like a foreign language—or if you’re eager to dip your toes in the investment pool but unsure where to start—consider this as a guide on the five types of real estate investments to consider:
Residential properties can take many forms: houses, apartment buildings, townhouses, and vacation houses where an individual pays rent, and the length of their stay is based on a signed rental or lease contract. In the Philippines, most rent schemes entail two months deposit from the renter.
Renting out real estate properties is a smart move if you want to generate passive income long term. With owning a property and renting it out, you’ll be able to have a reliable passive income without having to make so much effort. While investing in a residential property can be costly, the option of renting it out can help you pay for the mortgage. And once you’ve paid it off, you’ll still have a monthly income from your renters.
Investment risks are reduced when they are allocated to property assets, which is why it’s great for diversification. This is why residential real estate investments are the best way to acquire a low-risk addition to your portfolio that will give you steady returns.
The inflation hedging provided by investing in real estate comes from inflation and the consistent demand for real estate, and it’s generally long-term. This strategy is an effective hedge again in inflation, considering that the value of your property increases with the rate of inflation. You will also benefit from this valuable asset as it helps you maintain your income and standard of living. Compared with other real estate investments, residential property is a tangible asset value.
As real estate investment goes, residential real estate provides the lowest risk for investors on a budget. People will always need a place to live in; therefore, finding tenants to rent out your property will never be too much of a problem. By offering long term contracts for your residents, you can ensure that you won’t need to be looking for other renters every now and then. Compared with other real estate investments, residential is generally the most accessible for property investors.
Commercial properties consist mostly of offices and skyscrapers. Co-working spaces and office rentals are a big hit here in the Philippines. You could lease your commercial space to companies and small business owners who could pay rent to you for space.
Commercial real estate also involves multi-year leases, and this can lead to greater stability in cash flow. It even provides protection for the owner when rental rates decline. One consideration, however, is that markets do fluctuate, and rental rates could increase substantially over a short period. But keep in mind that it may not be possible to raise rates if commercial property is locked into older agreements.
Industrial real estate consists of everything from industrial warehouses, storage units, car washes, or other special purposes real estate that generate sales from customers who use the facility. Industrial real estate investments can often have significant fees and service revenue streams, such as adding coin-operated vacuum cleaners at a car wash to increase the return on investment for the owner.
Investors are usually attracted to investing in industrial property because of the annual return on investment they offer. Industrial property is traditionally valued with the square metres available and can offer yields of 8%, compared to say just 4%-5% on a house.
Industrial tenants most likely willing to sign long lease agreements (up to 10 years in some cases) that provide investors with much greater security compared to other typical residential leases. Most industrial contracts are also net leases, which means the tenant pays for costs that would normally be paid by the owner. These include insurance, utilities, maintenance and repair costs.
Generally speaking, a good tenant will maintain the building to a high standard, as the appearance reflects on their business. This means industrial buildings can be relatively low maintenance as the tenant is likely to attend to any maintenance issues quickly themselves.
Retail spaces have become popular nowadays due to the large amount of foot traffic. Oftentimes they are located near “anchor” stores – such as grocery stores which can also help to increase your foot traffic.
Shopping malls, boutique strips, and other retail storefronts — these are retail spaces that business owners look for. In some cases, like in SM malls, the property owner may also receive a percentage of sales generated by the tenant store in addition to a base rent to incentivize them to keep the property in top-notch condition.
Mixed-use properties are basically both residential and non-residential buildings. Commonly, it can be a single building, several buildings, or an entire neighbourhood, and may include restaurants, gas stations, retail stores, multifamily housing, parks, and more.
It is also popular for those with significant assets because they have a degree of built-in diversification, which is important for controlling risk.
Mixed-use properties became popular again in 2016, and are since attractive to many buyers/renters because they give people a closeness and easy walking distance to shops, restaurants, and jobs. Younger generations prefer this closeness. With a mixed-use property, you aren’t just buying a home, store or space, you’re buying into a whole neighbourhood vibe and community experience.
Between the residential and commercial buildings, there’s a lot of foot traffic. Your business/space will get more exposure than if you moved into a stand-alone space. Local residents usually are repeat customers to their nearby stores, as well. In a mixed-use building, you’re automatically exposed to more potential customers, whether you’re a new or established business. Your visibility is guaranteed to increase. The more diverse the property, the more active with customers it will be.
Since mixed-use properties are a big community, property management services are usually better than when you’re in a stand-alone space. You will be well taken care of from maintenance to upgrades.
These types of properties are usually close to schools, libraries, parks, hospitals; overall, they’re generally in a great location with easy access to a city’s amenities.
Mixed-use properties offer both residential and commercial real estate, which can help investors reduce the amount of risk their real estate portfolio is exposed to, while also helping minimize the impact of bad assets in their portfolio.
Are you interested in investing in real estate projects? Then consider inquiring about other possibilities with LYONS Realty Corp., a trusted brokerage firm in the Philippines dedicated to providing fresh perspective and ideas for a new approach in providing top-notch service to every real estate client. Contact us today and get your dream home in no time.